BY CARL CEDRONE, AAMS
If you own a business, you may well follow
a “do it now” philosophy — which is, of
course, necessary to keep things running
smoothly. Still, you also need to think about
tomorrow — which means you’ll want to take
action on your own retirement and business
succession plans.
Fortunately, you’ve got some attractive
options in these areas. For example, you
could choose a retirement plan that offers
at least two key advantages: potential
tax-deferred earnings and a wide array of
investment options. Plus, some retirement
plans allow you to make tax-deductible
contributions.
In selecting a retirement plan, you’ll
need to consider several factors, including
the size of your business and the number of
employees. If your business has no full-time
employees other than yourself and your
spouse, you may consider a Simplified Employee
Pension (SEP) plan or an owner-only
401(k), sometimes known as an individual
or solo 401(k). Or, if your goal is to contribute
as much as possible, you may want to
consider an owner-only defined benefit plan.
If you have employees, you might want to
investigate a simple IRA or even a 401(k)
plan. Your financial advisor, working with
plan design professionals and your tax advisor,
can help you analyze the options and
choose the plan that fits with your combined
personal and business goals.
Now, let’s turn to business succession
plans. Ultimately, your choice of a succession
plan strategy will depend on many
factors, such as the value of your business,
your need for the proceeds from the sale
of the business for your retirement, your
successor, and how well your business can
continue without you.
If your goal is to keep the business within
the family, you’ll need to consider how much
control you wish to retain (and for how
long), whether you wish to gift or sell, how
you balance your estate among your heirs,
and who can reasonably succeed you in running
the business.
Many succession planning techniques
are available, including an outright sale to
a third party, a sale to your employees or
management (at once or over time), or the
transfer of your business within your family
through sales or gifts during your life, at your
death or any combination thereof.
Many succession plans include a buysell
agreement. Upon your death, such an
agreement could allow a business partner
or a key employee to buy the business from
your surviving spouse or whoever inherits
your business interests. To provide the
funds needed for the partner or employee
(or even one of your children) to purchase
the business, an insurance policy could be
purchased.
Your estate plan — including your will
and any living trust — should address what
happens with the business, in case you still
own part or all of it at your death. The bestlaid
succession plans may go awry if the
unexpected occurs.
All these business succession options can
be complex, so before choosing any of them,
you will need to consult with your legal and
financial advisors.
Whether it’s selecting a retirement plan
or a succession strategy, you’ll want to take
your time and make the choices that are
appropriate for your individual situation.
You work extremely hard to run your
business — so do whatever it takes to help
maximize your benefits from it.
Cedrone is a financial advisor with Edward
Jones Financial in Queensbury.
Photo Courtesy Edward Jones Financial